California insurance commissioner chides Blue Shield over rates

For the second time in two days, a state regulator criticized Blue Shield of California for an "unreasonable" rate hike affecting tens of thousands of individual policyholders.

California Insurance Commissioner Dave Jones said Thursday that the nonprofit health insurer's latest rate hike of as much as 20% for about 268,000 individual policyholders was excessive. But he and other state officials don't have the authority to reject changes in premiums.

Jones said he asked Blue Shield to impose a smaller increase that would have saved policyholders an estimated $16.5 million. The company declined to do so, he said.

"These are the types of rate hikes that are unsustainable for California consumers," Jones said.

On Wednesday, the California Department of Managed Health Care declared a similar Blue Shield rate increase for about 27,000 individual policyholders was unreasonable.

These rate increases, effective March 1, are nearly 12% on average and represent a 21% increase over the last two years, according to the state insurance department.

Jones said Blue Shield's increases were unreasonable because of the company's excessive administrative costs and inflated estimates for future medical claims.

The San Francisco company said the higher rates were warranted because of rising healthcare costs and continued losses in its individual insurance business. A company spokesman said a $1-billion upgrade to its computer system was “causing us to run up higher administrative costs than we would like. We should see improvements in that over time."

Steve Shivinsky of Blue Shield added that "we are taking many actions to address rising medical costs, including collaborations with providers that improve quality while saving money for our customers."

Gracee Arthur, a longtime Blue Shield policyholder in Malibu, said her monthly premiums were rising about 13% to $691. She said it was unconscionable for the nonprofit insurer to pay its chief executive $4.6 million while raising customers' rates so much.

The company said "executive compensation has nothing to do with our rates."

Jones has expressed support for a 2014 ballot initiative that would give the state insurance commissioner the authority to deny unreasonable health insurance rate increases.

Without that power, he said, premiums will keep climbing despite other changes under the federal healthcare law next year.

"It's the big omission in the Affordable Care Act," Jones said. "I believe the rates will go up and go up dramatically" in 2014.

Opponents of the ballot measure, including health insurers, doctors, hospitals and business groups, say it would create a costly new bureaucracy and that it doesn't address the underlying reasons for rising premiums.

[For the record, 4:30 p.m. March 12: An earlier version of this post said California Insurance Commissioner Dave Jones at a March 7 news conference reiterated his support for a 2014 ballot initiative that would give the state insurance commissioner the authority to deny unreasonable health insurance rate increases. In actuality, he discussed the need for the authority but he did not mention the ballot initiative.]